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Business News/ Industry / Manufacturing/  When car market slows, Maruti drives in a different direction
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When car market slows, Maruti drives in a different direction

Maruti ends fiscal 2014 with a higher market share than in previous two years, continuing previous year's trend

Maruti Suzuki increased its share of the domestic market to 42% in the year that ended in March, up from 38.3% and 39.1%, respectively, in fiscal years 2012 and 2013, according to the Society of Indian Automobile Manufacturers. Photo: MintPremium
Maruti Suzuki increased its share of the domestic market to 42% in the year that ended in March, up from 38.3% and 39.1%, respectively, in fiscal years 2012 and 2013, according to the Society of Indian Automobile Manufacturers. Photo: Mint

Mumbai: Maruti Suzuki India Ltd has maintained an inverse correlation with the larger trend in the passenger car market in eight of the last 13 years, faring better than the industry in years when overall volumes have shrunk.

Maruti ended the financial year ended 31 March with a higher market share than that in the previous two years—a continuation of the previous year’s trend.

An analysis of data for the past 13 financial years shows Maruti’s market share increased during four difficult years (since 2002) when the industry’s growth rate slowed. Conversely, its share dropped in four other years when the industry’s growth accelerated.

Maruti’s growth rates do not move in a different direction from the industry’s, only that the extent of fluctuation in Maruti’ growth rates have been less than that of the industry. This, analysts say, leads to the conclusion that it is a dull, but solid and trustworthy brand.

The country’s largest carmaker increased its share of the domestic market to 42% in the year that ended in March, up from 38.3% and 39.1%, respectively, in fiscal years 2012 and 2013, according to the Society of Indian Automobile Manufacturers (Siam) lobby group. The overall market for passenger vehicles though, shrank by 6.05% in the year that ended on 31 March, registering its first decline in a decade as slower economic growth, higher prices and borrowing costs kept buyers away.

Mayank Pareek, chief operating officer, marketing and sales, Maruti Suzuki, attributes the company’s good run in a slow market to the reduced risk appetite of buyers. “In uncertain times buyers don’t experiment and are comfortable with tried and tested (models)," he said.

Unlike rival carmakers that are more susceptible to macro-economic swings, Maruti’s array of products at multiple price points and its wide distribution network makes its positioning unique, said Mahantesh Sabarad, deputy head (research), institutional equities, at SBICAP Securities Ltd.

He, however, said Maruti’s relative success is confined to its small cars and the company is yet to see prolonged volume growth in other segments.

“Company’s market share trend shows that Maruti has a very conservative appeal in the market—not too aggressive, nor too complacent," Sabarad said.

Typically, car buyers veer towards well-established brands when market conditions are weak, which the maker of Alto, Wagon R, Swift and other such popular models benefited from, said Pradeep Saxena, executive director at TNS Automotive, a market research firm. “Market leaders are in a better position to protect their market share when the going gets tough," he said.

Moreover, during such times, buyers of cars and others consumables also have a propensity to downtrade and settle for products that have a competitive price, said Debashish Mukherjee, principal at global consulting firm AT Kearney Ltd.

Motorcycles, more than any another segment in the automobile market, reflect the downtrading trend. With the exception of the low-priced, entry-level motorcycles, sales in other, higher displacement categories have either fallen or remained flat in the current fiscal year.

Sales in the entry level segment—75cc to 110cc—rose 4%. Sales dipped 2.59% in 110-125cc, remained flat in 125cc to 150cc, and fell 2.83% in 150 to 200cc segments, in fiscal 2014 compared with the sales a year ago.

In better years for the industry such as in 2009-10, when new small cars such as the Ford Figo, Chevrolet Beat and Volkswagen Polo pushed up passenger vehicle growth by 25%, Maruti has struggled to keep up. That year, its share dropped to 44.6% from 46.5% in the previous year.

Newer small car rivals, though, haven’t been able to make much of an impact and Maruti managed to recoup its market share in the subsequent years.

In a recent report, Joseph George, analyst at IIFL Ltd, wrote that an analysis of small car launches over the last seven years shows that Maruti and Hyundai Motor India Ltd’s success rate has been higher than their rivals’. It’s close to 89% for the market leader and Hyundai Motor India, compared with 18% for other manufacturers. George defines successful models as ones that clock an annualized revenue run rate of 2,500 crore after the first three quarters of their launch.

Sales of Ford India Pvt. Ltd’s Figo, for instance, tapered off after the initial success, but its sports utility vehicle model EcoSport, launched in June 2013, still enjoys brisk sales.

Unlike Maruti, the marketshares of leaders in other automobile segments such as two-wheelers and utility vehicles share a direct correlation with the broader market—their market share moves up when the market expands and vice versa.

Market leaders in other segment are likely to have ended the year with a lower share compared with that of a year ago.

Utility vehicle market leader Mahindra and Mahindra Ltd’s share in the fiscal 2014 was 41% against 47% a year ago. Similarly, two-wheeler maker Hero MotoCorp’s share dropped to 41% from 42%, in the same period. India’s largest commercial vehicle maker Tata Motors Ltd’s share declined to 50% from 56% a year ago, according to Siam.

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Published: 22 Apr 2014, 12:14 AM IST
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